Some Brazil sugar mills weighing switch to ethanol
Some sugarcane processors in Brazil are closely following the price gap between sugar and ethanol and could start making more of the biofuel if sugar prices continue to fall and oil prices continue their recovery from recent lows.
The possible switch in production strategy was a major topic at an annual sugar market meeting in New York this week.
"We haven't talked about ethanol for a while, but with the gap narrowing the issue is back," said sugar analyst Michael McDougall, referring to the price difference between sugar and ethanol for Brazilian sugarcane processors.
Most mills in Brazil, the world's largest sugar maker and second largest ethanol producer, have flexibility to adjust their plants to make more or less sugar and ethanol, depending on the market prices for both products.
For roughly the last four years sugar has given better returns for mills, due to higher international prices for the sweetener and lower ethanol prices in the Brazilian domestic market.
"There is a potential change in the Brazilian production mix if sugar prices fall below 17 cents," said Rodrigo Martini, head of Sugar & Ethanol at broker StoneX.
An international sugar trader, who asked not to be named, estimated that if sugar prices fall to around 16.5 cents per pound, Brazil would cut 1 MM tonnes of sugar production as cane would be used to make ethanol instead.
Raw sugar prices on ICE hit a three-year low on May 2, of 16.97 cents per pound. It partly recovered to around 17.7 cents on Thursday.
Oil prices have gained as much as 15% since May 5.
Mills a long distance from sugar exporting ports in Brazil, in Goias or Mato Grosso do Sul states, for example, could make the switch earlier, said Gustavo Segantini, a director at sugar and ethanol maker Tereos, since they sell ethanol locally while to export sugar they have extra costs with logistics.
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